EM LATAM CREDIT: Raizen SA (Baa3/BBB/BBB) Earnings Results
Earnings 3Q of Crop Year 2024/2025 (Ending Dec 2024)
Neutral for spreads
• 10 year bonds of Brazil Fuels distributor and sugarcane processor Raizen tightened 35 bps since February 6, 2025, last quoted T+186bps, when Brazil newspaper Valor reported that the company was considering a capital raise which we said was positive for spreads. That was a big recovery from January 21 when the company announced an earnings warning that triggered an S&P move to outlook negative on the ‘BBB’ rating on January 30th.
• Results disappointed with gross revenues down 35% while adjusted EBITDA fell 21% y/y reported at BRL3.1bn vs BRL3.5bn expected, primarily due to weather conditions. According to the company, Net debt grew 23% from 2023 leaving net debt/ adjusted EBITDA at 3x, an increase from 1.9x in 2023.
• Though results were worse than expected, they were roughly in line with ratings agency expectations and the key to bond performance will be if the company follows through on a capital raise. Call Monday may shed some more light on this open question.
Videoconference February 17, 2025 9:30 am Brasília|7:30 am New York|12:30 pm London
Link to Results:
https://api.mziq.com/mzfilemanager/v2/d/c016735f-1711-48ce-919f-a8c701b83c19/292a65a2-5ec3-bbdb-1ffd-36ff5fb25c07?origin=1
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JGBS: Futures Rally Strongly Overnight After US Core CPI Miss
In post-Tokyo trade, JGB futures rallied strongly, +33 compared to settlement levels, after US tsys richened following a slowing in core US CPI.
- Across core categories, below-expected figures in the aggregates were reported: core goods (0.05% vs 0.12% expected, 0.31% prior) and core services (0.27% vs 0.30% expected, 0.28% prior) were each a touch under analyst expectations.
- Focus turns to a slew of US data today: Weekly Jobless Claims, Retail Sales, Import/Export Indexes and regional Fed services and business outlooks all at 0830ET. Business Inventories and NAHB Housing Market Index at 1000ET.
- This comes after BoJ Governor Ueda yesterday echoed comments made by the bank's Deputy Governor Himino on Tuesday and reiterated that officials will discuss a rate hike next week. Ueda told regional bank executives that the central bank will raise rates if the economy and prices continue to improve. He pointed to rising confidence over wage increases, citing encouraging views at various New Year events and the BoJ's recent branch managers' meeting.
- Current OIS pricing indicated: a 69% probability of a 25bp hike in January; a cumulative 86% chance by May; and a full 25bp increase not fully priced in until May 2025.
- Today, the local calendar will see PPI data alongside 20-year supply.
US TSYS: Tsys Yields Gap Lower Following CPI
- Tsys futures saw strong gains on Wednesday spurred by below-estimate December core CPI increase. Across core categories, below-expected figures in the aggregates were reported: core goods (0.05% vs 0.12% expected, 0.31% prior) and core services (0.27% vs 0.30% expected, 0.28% prior) were each a touch under analyst expectations. Futures closed near session highs with TU +06 at 102-24⅛, while TY closed +31 at 108-10+.
- Cash treasury yields were 10bp-15bp lower, with belly-led gains richening the 2s5s30s fly to about -26bp from about -16bp. The 10yr yield closed down 14bps at at 4.653%
- In treasury options, continued demand for upside hedges for 10yr notes was seen via a large buyer of March 109.00 calls, which followed heavy buying of the 108.50 calls on Monday; the trades anticipate 10yr yield falling to 4.55% and 4.6% respectively
- Projected rate cuts through mid-2025 moved forward on the calendar with July now fully pricing in a 25bp cut. Current vs. this morning levels* as follows: Jan'25 steady at -0.7bp, Mar'25 at -7.4bp (-4.9bp), May'25 -13.5bp (-10.3bp), Jun'25 -22.9bp (-17.7bp), Jul'25 at -27.2bp (-21.7bp).
- Focus turns to a slew of data on Thursday: Weekly Jobless Claims, Retail Sales, Import/Export Indexes and regional Fed services and business outlooks all at 0830ET. Business Inventories and NAHB Housing Market Index at 1000ET. No scheduled Fed speakers as yet - Fed enters Blackout period Friday at midnight.
CNH: CNH Underperforms Softer USD Tone, CNY Basket Edging Off Recent Highs
USD/CNH pulled back close to 7.3350 after the softer US core CPI read. However, we quickly rebounded back above 7.3500 and track just under this level in early Thursday dealings. CNH was little changed for Wednesday's session, underperforming softer USD indices (BBDXY down around 0.20%). USD/CNY finished up above 7.3300, still near recent highs. The CNY CFETS basket tracker lost 0.12%, to be back near 101.50 (per BBG).
- Proximity to Trump's inauguration at the start of next week is likely helping keep USD/CNH dips supported, as markets are mindful of early tariff/trade risks form the new US administration.
- Recent ranges in USD/CNH continue to hold, the 20-day EMA support point is just above 7.3300, while upside moves have run out of steam above 7.3600 so far in 2025.
- EUR/USD failure to hold above 1.0300 may have also weighed on CNH sentiment. The USD/CNY fixing is likely to remain relatively steady today, but the fixing error may be a little narrower given softer USD indices from Wednesday trade.
- The local data calendar is empty until tomorrow's Q4 GDP print and Dec activity figures. We also have Dec house price figures.
- In the cross asset space, we had local equities pull back on Wednesday, the CSI 300 off 0.64%, but we remain above recent lows, with regulators aiming to support sentiment. Local yields have edged away from recent highs, although more so at the back end of the curve. Yesterday's very large OMO liquidity injection helped stabilize short term money market rates.
